IMPACT INVESTING: A Framework for Policy Design and Analysis

6
Evaluating Policy in Impact Investing
It may be useful to break down elements of a policy’s effectiveness into core characteristics that address
how a particular intervention may activate the desired private market activity. Here we provide a general set
of six criteria to assess and develop potential policy.
The six criteria are key findings drawn from the case studies in this report and provide rules of thumb for
considering the performance of impact investing policies. The criteria are also consistent with the needs of
investors uncovered during our outreach to practitioners and described in the literature.
The criteria are an important lens through which to consider impact investing policy. Although we do not
intend the criteria to be determinative, they do provide a set of general principals to guide readers:
SIX CR ITER IA TO DESIGN AND ASSESS P O TENTIAL POLICY
Targeting: The focus of a policy must be carefully matched to its objectives. The more narrowly a policy is
targeted, the more likely it is to catalyze a discrete social or environmental outcome. A broadly targeted policy may
create an environment in which impact investing more readily occurs, on a larger scale, but will likely lead to some
“mission drift” as investors search out the most profitable opportunities from a greater universe of options.
Transparency: Transparency in the substance and mechanism of policy is important for investors, and is likely
to be an important factor in determining market participation. In particular cases where information disclosure
is the mechanism of policy, the closeness of fit between disclosed information and investment decision also
has a direct bearing on investor behavior.
Coordination: A policy is likely to be more effective if it works in coordination with existing policies and
markets to leverage their effectiveness. Although government has a role to play in rapidly advancing the field, small
steps forward that build on established infrastructure may be more suitable than bold but isolated innovations.
Engagement: Engagement with impact investors is important for clarifying needs. Investors are less likely to
support a policy, and to therefore ensure its effectiveness, if it is conceived of and created absent dialogue with
current or prospective sources of capital. This may be especially true where policies impose behavioral changes,
or where an otherwise welcome concept might fail in practice because of poor design or implementation.
Commitment: Commitment to a policy should be consistent with the need. Different markets require different
levels of real or presumed commitment to a policy from government, in duration, scale, and enforcement.
Consistency of a commitment, when it is necessary, alleviates investor uncertainty. However, when government
is no longer needed to sustain a market, continued intervention is likely to exacerbate inefficiencies.
Implementation: An institutional context and infrastructure that supports efficient implementation
and modification is critical to success. When the specific provisions of a policy hamper its delivery, the
capacity of government to respond quickly to a demonstrated need for adjustment is an important
determinant of effectiveness.
IMPACT INVESTING: A Framework for Policy Design and Analysis